Working Capital Management and Profitability of MSMEs

Working Capital Management (WCM) plays a critical role in determining the financial sustainability and profitability of Micro, Small, and Medium Enterprises (MSMEs). Efficient management of short-term assets and liabilities ensures liquidity, operational continuity, and improved financial performance. This research paper examines the relationship between working capital management practices and profitability among MSMEs, with a particular focus on inventory management, accounts receivable, accounts payable, and cash conversion cycles. The study adopts a descriptive and analytical research design using secondary data collected from academic journals, industry reports, and financial statements of selected MSMEs. Statistical interpretation and comparative analysis are used to evaluate the impact of WCM on profitability indicators such as Return on Assets (ROA), Net Profit Margin (NPM), and Return on Capital Employed (ROCE). Findings reveal that effective working capital management significantly enhances profitability by reducing operational inefficiencies and improving cash flow stability. The study further identifies challenges faced by MSMEs, including delayed receivables, inadequate financial planning, and limited access to credit. Practical recommendations are provided for policymakers, financial institutions, and business managers to strengthen MSME financial performance through better working capital strategies. The paper contributes to the growing body of literature on MSME financial management and offers insights for future empirical research.